244 F.2d 11 | 2d Cir. | 1957
Lead Opinion
This action was brought to enjoin the collection of an assessment of interest in respect of alleged “deficiencies”
In its excess profits tax returns for the years 1943 and 1944 appellant claimed unused excess profits tax credit carryovers from the years 1941 and 1942, as a result of which it paid less in taxes than would otherwise have been due. Upon final audit of these returns some years later, the Commissioner disallowed a portion of these carryovers, thus determining “deficiencies” to that extent for the years in question. The Government does not seek to collect those asserted “deficiencies,” inasmuch as they were abated, if they ever existed, by the application of an excess profits tax credit carryback in 1945.
In 1954, the statutes of limitations having been extended by appropriate stipulations, the Government assessed the interest claimed. No notice of deficiency had been mailed. Appellant thereupon commenced this action to restrain collection of the assessment on the ground that Section 272(a) (1) of the Internal Revenue Code of 1939 prohibited such an assessment without a prior notice of deficiency. The sole issue before us is whether the procedure set forth in Section 272 is applicable.
That section provides:
“If in the case of any taxpayer, the Commissioner determines that there is a deficiency in respect of the tax imposed by this chapter, the Commissioner is authorized to send notice of such deficiency to the taxpayer by registered mail. Within ninety days after such notice is mailed * * * the taxpayer may file a petition with the Tax Court of the United States for a redeter-mination of the deficiency. No assessment of a deficiency in respect of the tax imposed by this chapter and no distraint or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer, nor until the expiration of such ninety-day period, nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final. * * * ” 26 U.S.C.A. § 272(a) (1).
Section 272 had its origin in Section 274 of the Revenue Act of 1924, 43 Stat. 297. Before that time taxpayers were not permitted to litigate the correctness of the Commissioner’s determination of tax until they had paid the amount claimed. In that year, the Congress established the Board of Tax Appeals (known since 1942 as the Tax Court) “to provide taxpayers an opportunity to secure an independent review * * * in advance of their paying the tax found by the Commissioner to be due. Before the
The Tax Court’s jurisdiction under Section 272 is on its face limited to situations in which “the Commissioner determines there is a deficiency,” and the Tax Court has power only to redetermine such a “deficiency.” Thus, it has no jurisdiction of questions which relate solely to the assessment of interest. Commissioner of Internal Revenue v. Kilpatrick's Estate, 6 Cir., 140 F.2d 887; United States v. Globe Indemnity Co., 2 Cir., 94 F.2d 576; Standard Portland Cement Co. v. Commissioner of Internal Revenue, 3 Cir., 80 F.2d 585; Crolich v. United States, D.C., 144 F.Supp. 109; Guaranty Trust Co. of New York v. United States, D.C., 95 F.Supp. 776; Estate of Sloane, 3 T.C.M. 555, 570. Similarly, if prior payment has extinguished the “deficiency,” there is no jurisdiction in the Tax Court even though this be contrary to the intention of the parties. Bendheim v. Commissioner of Internal Revenue, 2 Cir., 214 F.2d 26, McConkey v. Commissioner of Internal Revenue, 4 Cir., 199 F.2d 892; Superheater Co. v. Commissioner of Internal Revenue, 2 Cir., 125 F.2d 514; Walsh, 21 T.C. 1063; Anderson, 11 T.C. 841. The statutory procedure urged by appellant is applicable of course only where the Tax Court has jurisdiction, smce the deficiency notice procedure was designed only to allow such a determination prior to payment.
Two points should be made very clear in limine. First, it is settled that the Government is entitled to interest if the asserted “deficiencies” did exist for a period of time. Manning v. Seeley Tube & Box Co., 338 U.S. 561, 70 S.Ct. 386, 94 L.Ed. 346. The only dispute in fhe case at bar relates to the proper procedure to be used. Second, the Government does not seek to prevent appellant from litigating the existence of the asserted “deficiencies.” If the interest is collected under the challenged procedure, appellant will be free to litigate that issue in a suit for refund.
Appellant contends that, despite the fae£ Gode couehes the Tax Court’s jurisdiction in terms of a present “deficiency,” the Code as a whole indicates that the Congress meant the Tax Court to have jurisdiction whenever there is a “live” dispute concerning a “deficiency,” past or present, so long as the taxpayer has not waived recourse to that tribunal. Appellant relies on two propositions, which it says are implicit in the Code: (1) that a taxpayer normally need not pay disputed sums without the opportunity to secure a prior adjudication, and (2) that a taxpayer is entitled to a determination by the Tax Court, irrespective of its right to litigate the issues in controversy in some other federal court, unless it has waived the right. These propositions, while distinct, are necessarily closely interrelated, as the only forum normally available for litigation prior to payment is the Tax Court.
The Government contends that appeljard’s claims have been rejected by cases folding that the deficiency notice procedure get forth in Section 272 is inap. piicah>le where the Government is seeking to collect interest on abated «defi_ dencies» citing United States v. Koppers Co., 348 U.S. 254, 75 S.Ct. 268, 99 L.Ed. 302; Hastings & Co. v. Smith, 3 Cir., 224 F.2d 875; Rodgers v. United States, 123 Ct.Cl. 779, 108 F.Supp. 727; Cumberland Portland Cement Co. v. United States, D.C., 101 F.Supp. 577, affirmed per curiam 6 Cir., 202 F.2d 152. These cases are not dispositive of this appeal, however, for in each of them the taxpayer admitted the existence of the former “deficiency” but denied liability for interest on other grounds. Under these circumstances there would have been no point in insisting upon a deficiency notice, since, as noted above, the Tax Court
The second of appellant’s propositions is that a taxpayer who has not waived recourse to that tribunal is entitled as of right to secure a Tax Court determination of his contentions relating to the existence of a “deficiency.” It points out that, even where a jeopardy assessment has been made, specific provision is made to preserve to the taxpayer an opportunity to secure a Tax Court adjudication although there is no present “deficiency.” Section 273(b). Appellant finds the provision of Section 271(b) “a further indication of Congressional intent to permit taxpayers to avail themselves of the jurisdiction of the Tax Court in all cases except where they waive their rights by voluntary payment in advance.” This section eliminates from consideration in determining “deficiencies,” required payments of estimated tax.
But appellant overlooks the provisions of Section 274, which specifically provide for assessment of “deficiencies” without recourse to the Tax Court following an adjudication of bankruptcy or the appointment of a receiver. Thus, even in this instance of involuntary payment, the Congress has denied the taxpayer access to the Tax Court. In addition, it is undisputed that a mistaken overpayment in one respect will prevent the taxpayer from litigating other questions in the Tax Court if no net “deficiency” results. It is clear that such a taxpayer has not voluntarily waived the opportunity to litigate in the Tax Court. Moreover, it is inconceivable that the Congress considered the right to litigate in the Tax Court rather than in some other federal court a matter of significance, since it unequivocally denied the opportunity to any taxpayer who promptly paid an asserted “deficiency.” We do not believe that the Congress meant to discriminate against dutiful taxpayers or that it intended to discourage prompt collection of revenue. We accordingly reject appellant’s second proposition.
We find no overriding policy which requires us to depart from the normal rule that the jurisdiction of the Tax Court depends upon the assertion of a present “deficiency.” As the 1945 carryback precluded the Commissioner from asserting such a “deficiency,” the Tax Court is without jurisdiction of the dispute in the case at bar. Accordingly it was not necessary for the Commissioner to send appellant a deficiency notice as a condition precedent to assessment of the interest on the asserted former “deficiencies.”
Affirmed.
. The term is defined in Section 271, Internal Revenue Code of 1939, 26 U.S.C.A. § 271. It does not include amounts due as interest.
. 26 U.S.C.A. Excess Profits Taxes, § 710 (b) and (e).
Dissenting Opinion
(dissenting).
The case turns on § 272 of the Code of 1939
The defendant-collector argues
When the device of the carry-back was introduced into the structure of the income and excess profits tax law by the Revenue Act of 1942,
Although, as my brothers have noted, the procedure provided in § 274 for the liquidation of claims against bankrupt taxpayers is somewhat different from that generally provided for the determination of deficiencies, I am unable to see how that difference strengthens the defendant’s position. Surely the fact that in a bankruptcy case the Commissioner must prove his claim in the bankruptcy court thus entitling the taxpayer to an adjudication in advance of payment, as § 274 provides, does not suggest that a solvent taxpayer may not petition the Tax Court for a final determination of a deficiency in advance of payment.
The cases cited by the Government, and indeed those cited by my brothers, seem to me not to justify the dismissal below. It will serve no useful purpose to analyze these cases individually. In some, as the majority opinion notes, “the court approved a procedure whereby a taxpayer may be required to pay a disputed sum of interest without an opportunity to secure a prior determination.” But in none of these cases was the dispute as to interest an underlying and consistently maintained dispute as to the validity of the Commissioner’s determination of the deficiency upon which the claim of interest depended.
I would hold that for failure to comply with the procedure prescribed by § 272
. All references in this opinion to statutory sections and titles are to the Internal Revenue Code of 1939, unless otherwise indicated.
. Section 272 by its express terms is applicable to taxes “imposed by this chapter,” i. e., Chapter 1 of Subtitle A, which includes income and excess profits taxes. That it is not applicable to the comparatively simple miscellaneous taxes imposed under Subtitle B of the Code is a fact which, though noted in the majority •opinion, 1 find of no pertinence to the problem presented by this appeal which involves a disputed deficiency asserted ■under the complex provisions of the law imposing excess profits taxes.
. Implicit in this argument is the proposi- ■ tion that under the rule of Manning v. Seeley Tube & Box Co., 338 U.S. 561, 70 S.Ct. 386, 94 L.Ed. 346, when a deficiency exists for a time until abated or canceled by a carry-back, the liability for interest accruing on the deficiency during the period of its existence survives the abatement of the deficiency by the carry-back. The appellant does not dispute this proposition.
. Section 153 of the 1942 Act, § 122 of the 1939 Code as amended, provided for the carry-back of net operating loss deductions. And § 204 of the 1942 Act, § 710(c) of said Code as amended, provided for the carry-back of unused excess profits credits.